Global financial markets were on edge this week, reacting to events outside the U.S. as geopolitical tensions increased in Ukraine and in the Middle East. Concern spread that Europe’s economic recovery may be stalling. China and Japan also appear to be vulnerable to a loss of momentum.
Within the U.S. we continue to see generally favorable economic data. The U.S. trade gap narrowed by more than expected to -$41.5 billion in June. This implies a small upward revision to Q2 GDP growth, in the neighborhood of 0.3 percent. Energy continues to exert a positive influence on the balance of trade. Net trade in petroleum has improved from a -$24.0 billion balance in January 2013 to -$14.7 billion this June, with both gains in exports and reductions to imports.
The July ISM Non-Manufacturing Index climbed into record territory for its short life. Since its introduction in January 2008, the ISM NMF index has never been as high as it was in July, at 58.7 percent, indicating strongly improving conditions in the service sector. All ten sub-indexes were above 50.
The Mortgage Bankers’ Association Composite Mortgage Applications Index ticked up by 1.6 percent for the week ending August 1. The gain came from refis, up 3.8 percent. Mortgage apps for purchase dipped by 1.3 percent, continuing a soft trend through July and indicating a lackluster start to home sales in August.
Initial claims for unemployment insurance fell by 14,000 to hit a very low 289,000 for the week ending August 2. Continuing claims were also low, falling by 24,000 to hit 2,518,000 for the week ending July 26.
Nonfarm business productivity bounced back in Q2, at a 2.5 percent annual rate, after falling at a 4.5 percent rate in Q1. Productivity appears to be on a gradual improving trend and will be helped by increasing business investment this year.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 08-08-14.